You may be thinking about purchasing a buy to let property
and have already considered the following:

Local market

Location

Finance arrangements

Tenant targets

Rental yield

Capital growth

Insurance (building and landlord)

Legal fees

However, have you considered the following tax consequences
of a buy to let property?

Stamp Duty Land
Tax (SDLT) in England and Northern Ireland

SDLT is due on all property purchases at the standard rates shown below. However in April 2016 new rules were introduced meaning landlords pay an extra three percentage of SDLT on each band when they purchase a buy-to-let property.

House Price

Standard Rate

Buy to Let / Second Home Rate

Up to £125,000

0%

3%

£125,001 – £250,000

2%

5%

£250,001 – £925,000

5%

8%

£925,001 – £1.5m

10%

13%

Over £1.5m

12%

15%

The additional SDLT rates can make a substantial difference to the
standard rates, particularly if the property purchase price is high.

For example, should you purchase a £200,000 buy to let property the total Stamp Duty payable would total £7,500, this is broken down as follows:

Up to £125,000

3%

£3,750

£125,001 to £200,000

5%

£3,750

Total Stamp Duty Due

£7,500

In addition, married
couples or civil partners are seen as one unit by HMRC for SDLT. Therefore if a husband owns a property and
his wife buys a property, the additional rates for a second property would
apply even though they legally own the properties separately.

SDLT is not due in Scotland and Wales, an equivalent tax is due in those countries. Land and Buildings Transaction Tax (LBTT) is due on property purchases in Scotland and Land Transaction Tax (LTT) in Wales. You can find the rates on the relevant government websites.

The deadline
for reporting and paying the SDLT on a purchase of a property in England or
Northern Ireland is now 14 calendar days. If this deadline be missed –
penalties will apply. The period for paying LBTT on properties in Scotland, or
LTT for purchases in Wales is 30 calendar days.

Value Added Tax (VAT)

VAT is not due on residential properties however if you were to buy a
commercial property you may be liable to 20% VAT on the purchase price of the
commercial property.

Expert advice should be sought if you are considering buying a
commercial property. We have a specialist team at MHA Tait Walker who can
assist you with any queries you have.

Personal Requirements

An area commonly overlooked, but one of
significant importance, is your personal requirements once you’ve
purchased a buy-to-let property.

In purchasing a second property, and
receiving rental income, you’ll meet HMRC’s guidance on who needs to complete a
tax return. The only exception to this rule is if the
rental income you receive in the year is less than £1,000.

Registering for Self-Assessment

You will need to register for
self-assessment by 5 October following the end of the tax year you started
receiving rental income e.g. 5 October 2019 for a property first rented during
the tax year 6 April 2018 to 5 April 2019. By registering you’re making HMRC aware you
need to complete a tax return. If this is done incorrectly you may be
required to complete a tax return for an incorrect year.

Once HMRC have processed your application
you will be issued with a Unique Taxpayer Reference, otherwise known as
a ‘UTR’. This is a 10-digit reference you need to complete your tax
return.

What are the Self-Assessment deadlines?

You submit tax
returns for tax years, not calendar years, and you do this in arrears.

For example,
for the 2019/20 tax year, running 6 April 2019 to 5 April 2020, you would:

need to
register for Self-Assessment by 5 October 2020 if you’ve never submitted a
return before